How to Qualify for a Consumer Proposal in Canada

When debt starts piling up and it feels like there is no escape, it can be overwhelming. But here in Canada, there is an option that might just give you the breathing room you need: a consumer proposal. Think of it as a way to take control without the drastic step of declaring bankruptcy.

A consumer proposal is a formal, legally binding agreement between you and your creditors that allows you to pay back part of your debts over time. It is a debt relief option that is designed to give you some relief without going to the extremes.

In this blog, we will break down how you can qualify for a consumer proposal, walk you through the process, and give you a roadmap for getting started.

Why a Consumer Proposal Might Be Your Best Bet

If you are looking at debt-relief options, it is important to weigh the benefits of a consumer proposal compared to other choices—like a personal bankruptcy filing.

While bankruptcy might seem like a fast fix, a consumer proposal offers way more flexibility and less long-term damage. Here is why it could be worth your consideration:

Debt Reduction

As for the rest of your debts, they are forgiven forever, once you complete the terms of the proposal. This debt reduction is truly quite substantial. It may sound too good to be true, but for creditors, getting some money back is better than getting none. Your Licensed Insolvency Trustee will work with you on a debt reduction plan that will work for both you and all of your unsecured creditors.

Keep Your Assets

Unlike bankruptcy, where in some cases, you might have to give up things like your car or house, a consumer proposal allows you to keep your assets as long as you stay on top of payments for secured debts like your mortgage debt or car loan.

With a consumer proposal, your Licensed Insolvency Trustee does not take ownership of your assets. Instead, you merely make a settlement by paying back a portion of your debt in monthly, affordable payments that work for you.

Fixed Monthly Payments

Budgeting becomes a whole lot easier with a consumer proposal. Once your proposal is accepted, your monthly payment is set, so you know exactly what you have to pay each month. No more surprises, just a clear and manageable plan moving forward.

Your Licensed Insolvency Trustee will work with you to come up with a debt settlement plan and monthly payment that is affordable and realistic. The goal is to help you tackle your debt and build a better relationship with money in the long run. You can even set which days you would like the payment to be taken out of your account. Some people like to have it come out just after their payday to ensure that there is enough money for the payments.

Protection from Creditors

Once you file a consumer proposal, all those annoying collection calls and legal threats stop. This means that you will not have to feel a sense of panic whenever your phone rings or you get your mail. Your creditors have to back off, giving you the peace of mind you need to focus on rebuilding. This will help finally take the pressure off your shoulders!

No Wage Garnishment

A garnishment is the result of a court action, where the judge issues legal paperwork ordering your employer to turn over a portion of each of your pay slips to the creditor you owe money to. This action continues until the debt is paid in full.

With a consumer proposal, your paycheque will be your paycheque as creditors will not be able to ask for a portion of your income any further. It will be a breath of fresh air all around.

Avoid Bankruptcy

Bankruptcy can feel like the end of the road and is often seen as a last resort. If a consumer proposal is right for you, it can help you manage your debt without facing the impacts of bankruptcy. The major drawbacks to filing a bankruptcy are having to potentially liquidate some of your assets, the negative impact it has on your credit rating, and your ability to borrow money in the future will be significantly affected.

Credit Rating Impact

Let’s face it, both bankruptcy and consumer proposals hit your credit rating. But here is the thing: a consumer proposal does not hurt it as much, because a consumer proposal may be paid off sooner to allow your credit record to recover that much faster. With bankruptcy, the damage can stick around for up to six or seven years after you finish the process, making it much harder to rebuild. In addition, if you have multiple bankruptcy filings it stays on your credit record for fourteen years.

How to Qualify for a Consumer Proposal

Wondering if you are eligible for a consumer proposal? Not everyone qualifies, but the criteria are pretty straightforward. Here is what you need to meet the requirements and start taking control of your debt:

There is a Debt Threshold

To qualify, your unsecured debts need to fall between $1,000 and $250,000. If you are filing a joint consumer proposal with your spouse or common-law partner, the combined total cannot exceed $500,000. Keep in mind, that this only covers unsecured debts—things like credit card debt and personal loans. Mortgage or car loans do not count since they are considered secured debts, and have to be paid if you wish to keep your car or home.

Only Unsecured Debts are Covered

A consumer proposal deals with unsecured debts, which include credit card debt, personal loans, payday loans, tax debt, and medical bills. Your mortgage or car loan? They are secured debts and are not part of the deal.

You Cannot Manage Your Debt

To qualify for a consumer proposal, you have to prove that you are insolvent, meaning you cannot manage to pay off your debts with your current income—you either cannot keep up with payments or what you owe is way more than what you own. You have got to show that paying off everything is not realistic at this point.

You Must Be a Canadian Resident

You do not need to be a citizen, but you do need to be living in Canada when you file your consumer proposal.

Working with Licensed Insolvency Trustees Is a Must

The only way to file a consumer proposal is through a Licensed Insolvency Trustee. They act as the mediator between you and your creditors, helping you prepare, submit, and negotiate the terms of your proposal.

Document Checklist for a Consumer Proposal

When you are filing a consumer proposal, staying organized with the right documents can make everything go a lot smoother and faster. Your Licensed Insolvency Trustee will let you know what is required, but we will also quickly cover it for you!

Here is what you will need to have ready when filing for a consumer proposal:

• Proof of Income: This includes your pay stubs, bank statements, and any other sources of income, like child support or rental income. Your LIT will use these income sources, and your associated monthly expenses, to figure out what you can realistically afford to pay each month.
• List of Debts: Get together statements for all your debts—credit cards, payday loans, unsecured lines of credit, and tax debt. Make sure everything’s accurate, especially your unsecured debts since those are the ones included in the proposal to be settled.
• Assets and Liabilities: You will need to show documentation of any assets like property, vehicles, or investments. Also, list any secured debt balances that you still owe, like mortgages or car loans, even though they are not part of the consumer proposal.
• Monthly Budget: Your LIT will need a breakdown of your monthly expenses—things like rent, utilities, groceries, and transportation. This, again, helps figure out how much you can realistically afford to pay each month.
• Tax Filings: You may need to provide recent tax returns, especially if you have outstanding tax debt that is going to be part of the proposal, or if your income comes solely from a self-employed business.

Having all these documents handy means your LIT can quickly assess your financial situation and put together a proposal that works for both you and your unsecured creditors.

Comparing Consumer Proposals with Bankruptcy

Understanding the differences between a consumer proposal and bankruptcy is essential when deciding which debt relief solution is best for you. Here are some key things to consider:

Asset Protection

With a consumer proposal, you get to keep your assets (e.g., your home, vehicle) as long as you continue making payments on your mortgage or vehicle financing contract. In bankruptcy, you may be required to surrender or buy back certain assets, to have those funds be available to be distributed to your creditors, like recreational vehicles or investments in your bank.

Impact on Credit

Both options will affect your credit score, but a consumer proposal typically has a lower impact. A consumer proposal remains on your credit report for one to three years after you finish paying it off, while bankruptcy stays on your credit record for six to seven years for a first bankruptcy.

Payment Requirements

Bankruptcy often requires you to pay more if your income increases, while consumer proposals offer a set monthly payment, which gives you more financial certainty.

Choosing Farber for Consumer Proposals

When it comes to filing a consumer proposal, choosing the right Licensed Insolvency Trustee is crucial. With Farber you get:

• Trusted Expertise: With decades of experience, our LITs have helped thousands of Canadians successfully complete their consumer proposals and find financial stability.
• To Hear Client Success Stories: Our track record speaks for itself. We have several client testimonials and case studies showcasing how we have helped individuals overcome their financial challenges.
• Personalized Guidance: Farber is committed to your financial wellness. We offer personalized advice and support throughout the entire consumer proposal process, so you understand your options and make the best decision for your financial future.

If you are ready to explore whether a consumer proposal is right for you, reach out to us today for a free consultation.

See If You Quality for a Consumer Proposal Today

A consumer proposal can be a great way for Canadians to get some relief from overwhelming debt traps. By meeting the eligibility requirements, getting your documents in order, and working with a Licensed Insolvency Trustee (LIT), you can come up with a payment plan that works for both you and your creditors. One of the biggest perks? You get to keep your assets, reduce your debt, and avoid creditor actions—making it a solid alternative to bankruptcy.

If you are feeling weighed down by debt and need a way out, it might be worth chatting with a Licensed Insolvency Trustee to see how you can qualify for a consumer proposal and if this option is right for you.

Book a free consultation today! With the right advice, you can take control of your finances and start your journey toward being debt-free.